| The World Bank promises Russia a good life with interest from the stabilization fund Despite the lack of positive changes in the economy, life for Russians is gradually improving. In the coming decades, without any structural reforms, the government will be able to sharply increase budget revenues, get rid of oil dependence and defeat inflation. The miraculous recipe is outlined in the latest World Bank report on the Russian economy.
The Russian authorities do not need to make sudden movements and invent complex schemes. It is enough to turn Russia into a rentier state. Simply put, live on the interest from investing part of the stabilization fund, which will grow at an accelerated pace thanks to high oil prices for the foreseeable future.
According to World Bank experts, last year Russia maintained significant growth rates in real wages (9.7%) and real disposable income (8.8%). The share of people living below the poverty line fell from 17.8% in 2004 to 15.8% in 2005. Moreover, World Bank experts indicate that the alarming increase in mortality has stopped. Life expectancy of Russians increased from 64.3 to 65.8 years.
However, the economic situation in Russia leaves much to be desired. “Despite the third consecutive year of double-digit growth in capital investment, the relative level of investment remains low compared with other developing countries,” the report said. Last year, the increase in investment in fixed assets in Russia amounted to 18% of GDP, while in other developing countries this figure is usually no lower than 25%. Although GDP growth remains high, it is structurally changing for the worse. Almost 40% of economic growth last year was achieved by the trade sector, unlike in previous years, when the engines of growth were oil and some other sectors of the real sector.
The growth rate of physical volumes of Russian exports decreased by almost half - from 11.9% in 2004 to 5.6% in 2005. At the same time, the positive trade balance amounted to $84.2 billion compared to $58.6 billion in 2004 - solely due to rising energy prices.
However, given the unpredictable dynamics of oil price fluctuations, as well as high inflation rates, maintaining the current economic model, according to WB experts, is very risky. Until now, it was believed that the best remedy for oil dependence was structural reforms and stimulating the flow of investment into the economy. However, there are other ways. “If we abandon the policy of increasing government budget expenditures, then excess revenues can be used now with very significant benefits for Russia, which will significantly increase the security of the economy, the standard of living and create opportunities for more effective policies,” the authors of the report believe.
If oil prices remain high, the size of the stabilization fund could double within a year. If by the end of 2005 it contained more than 1.5 trillion rubles, then by the end its volume may already exceed 3 trillion. This amount is already enough to insure the federal budget against troubles for several years ahead, even if oil prices fall to $20. Which looks completely unrealistic for now.
If, as most experts believe, there is no sharp drop in prices, the stabilization fund will continue its rapid growth. Thus, this fund has become the main instrument of macroeconomic stability in Russia, the authors of the report believe.
Numerous debates about stimulating economic growth in Russia come down to either tax cuts or large-scale government investments. The World Bank offers a third way - investing the stabilization fund in foreign assets. By placing additional resources in a manageable portfolio of international assets, Russia can reduce its dependence on oil and diversify its economy. Moreover, if at the initial stage it is proposed to invest these funds exclusively in government bonds and bills, then since 2011, 60% of the investment portfolio of the Russian Federation, according to the World Bank, should be in shares of private companies.
In the medium term, this will allow using only the fund’s income for various needs, without touching the principal amount. At the same time, the profitability of many stocks has a negative correlation with the dynamics of oil prices (that is, the lower oil prices, the higher the income on these shares). The bank's calculations show that even in the not-so-favorable scenario - a gradual decline in oil prices to $40 and with annual GDP growth of only 3%, investments in foreign securities will provide savings in the stabilization fund in the amount of $1.47 trillion. 2030 (at comparable prices), which is twice the volume of the entire Russian GDP at present.
Such an investment of money will not only stimulate the economy, but also glorify its name for centuries. “In future textbooks of Russian history, the assessment of the current economic policy will depend on the effectiveness of managing the country’s growing oil wealth,” conclude World Bank experts. Vera SITNINA |
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